Macroeconomic Interdependence Between a Stagnant and a Fully Employed Country

41 Pages Posted: 29 Jan 2014 Last revised: 21 Jun 2017

See all articles by Yoshiyasu Ono

Yoshiyasu Ono

Osaka University - Institute of Social and Economic Research (ISER)

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Date Written: June 12, 2017

Abstract

This paper presents a two-country two-commodity dynamic model with free international asset trade in which one country achieves full employment and the other suffers long-run unemployment. Own and spill-over effects of changes in policy, technological and preference parameters that emerge through exchange-rate adjustment are examined. Parameter changes that worsen the stagnant country’s current account depreciate the home currency, expand home employment and improve the foreign terms of trade, making both countries better off. The stagnant country’s foreign aid to the fully employed country also yields the same beneficial effects.

Keywords: long-run unemployment, long-run stagnation, fiscal expansion, government purchases, current account, liquidity trap, exchange rate.

JEL Classification: F32, F41, F35

Suggested Citation

Ono, Yoshiyasu, Macroeconomic Interdependence Between a Stagnant and a Fully Employed Country (June 12, 2017). ISER Discussion Paper No. 893. Available at SSRN: https://ssrn.com/abstract=2387242

Yoshiyasu Ono (Contact Author)

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

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